Hungarian labour data signals the need for difficult decisions ahead

The latest labour market statistics from the Hungarian Central Statistical Office (HCSO) show a slight increase in the unemployment rate in September, which is in line with market expectations. The model estimate is 4.5%, while the official survey-based three-month moving average indicates the same unemployment rate for the July-September period. This suggests that an upward trend in unemployment has emerged since the beginning of the year. Based on these two statistics, there are around 220,000 unemployed people in Hungary.

Examining the details, the monthly data revealed that the decline in the working-age population persisted. This reduced the number of active people to a greater extent, while moderating the number of inactive people to a lesser extent. Meanwhile, employment declined within the margin of error, and unemployment increased slightly. The September movements are in line with the seasonal pattern observed in previous years and do not suggest any structural shift.

As the demand and supply sides of the labour market declined hand in hand in September, activity and employment rates remained relatively stable. The labour market therefore remains tight, putting companies in an extremely difficult position as they try to manage high wage costs, which are expected to grow significantly over the next couple of years, in an economy which has been stuck in stagnation for three years.

We do not anticipate any significant changes to the supply side of the labour market in the future. While no demographic shift is expected, rising labour costs and the lack of economic recovery may further lower labour market demand. While the planned 13% increase in the minimum wage next year will strengthen the bargaining position of employees, the generally weak performance of the economy will counterbalance this.

The main risk in the labour market at present is that companies will try to manage the expected wage increases by keeping wage costs flat if economic growth does not pick up next year. This would lead to a reduction in the number of employees. Alternatively, if businesses focus on profit margins instead of making layoffs, a significant price increase could be introduced to compensate for high labour costs.

Considering the latest data, we’re maintaining our labour market forecast, which predicts that the unemployment rate will remain at around 4.5% for the rest of the year. While we anticipate only a modest decline in unemployment next year alongside an improvement in overall economic performance, there are non-negligible risks which clearly indicate the possibility of a significant weakening of the labour market.